Do US Mortgage Lenders Operate Abroad?

July 3, 2006, Reviewed June 30, 2009

"I plan to buy a house on the Costa Brava in Spain. Can I find a US lender for the mortgage I will need?"

No, the best you could do is get a referral to a local (Spanish) lender. With very few exceptions, US mortgage lenders don’t lend outside the US.

In most other countries, you must be licensed to make mortgage loans, which US lenders are not. Even if no license was required, US lenders making mortgage loans in other countries could not enforce their liens against borrowers in default except by complying with the local rules regarding how liens are established and enforced. These rules are mainly determined by local laws and customs, and are often affected by local politics.

It is difficult enough, even in the US, for a lender to take someone’s home away from them for failure to repay their loan. No lender wants to do it in a foreign country.

Even within the US, our 50 states have 50 different sets of laws on lien-enforcement. While differing in many important details, these laws have in common that they are written in English, and all provide lenders with the right to enforce their liens within a reasonable period by following some well-defined procedures that protect borrower rights. As a result, we have some national lenders who operate in every state. But we also have many lenders who don’t operate in all states, and many operate in only one.

Even in the US, the process of enforcing liens may become politicized if the number of defaults in a state becomes very large. A US lender experiencing heavy defaults in a foreign country would find the barriers to lien enforcement even greater.

A second reason that US mortgage lenders don’t operate outside the country is that, with few exceptions, mortgage loans in other countries are made in the currencies of those countries. This would subject the lender to exchange risk. While many banks do cross-border lending in foreign currencies by hedging the exchange risks involved, this lending is relatively short-term. Mortgage loans are long-term and it would be extremely costly, if it is possible at all, to hedge exchange risk over their entire life.

The upshot is that when US mortgage lenders elect to operate abroad, which some have done, it is in concert with a local partner. The US bank provides the expertise, systems and business processes, but the partner makes the loans and enforces the liens.

Occasional exceptions arise in the case of our close neighbors, Canada and Mexico. For example, vacation houses can be purchased in areas of Mexico that are attractive to US residents, which are financed by US lenders. Both the houses and loans, however, are priced in dollars rather than pesos.

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